Free
trade helps reduce poverty, says new WTO secretariat
study

A
new WTO Secretariat study published today (19 June) finds
that trade liberalization helps poor countries to catch
up with rich ones and that this faster economic growth
helps to alleviate poverty. WTO Director-General Mike
Moore said: This report confirms that although
trade alone may not be enough to eradicate poverty, it is
essential if poor people are to have any hope of a
brighter future. For example, 30 years ago, South Korea
was as poor as Ghana. Today, thanks to trade led growth,
it is as rich as Portugal.

The following is a selection of the highlights of the
study "Trade, Income Disparity and Poverty", by
Dan Ben-David of Tel Aviv University and L. Alan Winters
of Sussex University.(1)

Extreme
poverty is a huge problem. 1.2 billion people
survive on less than a dollar a day. A further
1.6 billion, more than a quarter of the world's
population, make do with one to two dollars a
day.

To
alleviate poverty, developing economies need to
grow faster, and the poor need to benefit from
this growth. Trade can play an important part in
reducing poverty, because it boosts economic
growth and the poor tend to benefit from that
faster growth.

The
study finds that, in general, living standards in
developing countries are not catching up with
those in developed countries. But some developing
countries are catching up. What distinguishes
them is their openness to trade. The countries
that are catching up with rich ones are those
that are open to trade; and the more open they
are, the faster they are converging.

The
study also finds that poor people within a
country generally gain from trade liberalization.
It concludes that "trade liberalization is
generally a strongly positive contributor to
poverty alleviationit allows people to
exploit their productive potential, assists
economic growth, curtails arbitrary policy
interventions and helps to insulate against
shocks". This concurs with a new World Bank
study (2)
which, using data from 80 countries over four
decades, confirms that openness boosts economic
growth and that the incomes of the poor rise
one-for-one with overall growth.

The
WTO study acknowledges that some people do lose
in the short run from trade liberalization. Some
are well-off, others not. The report argues that
the plight of the losers should not be ignored,
but that the right way to alleviate their
hardship is through social safety nets and job
retraining rather than by abandoning reforms that
benefit most people.

Notes:

1.WTO
Special Study No.5: "Trade, Income Disparity and
Poverty", available in English, French and Spanish -
ISBN 92-970-1215-6;
June 2000; Price CHF 30.- Back
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